Well, maybe that EU summit agreement to cut the link between banks and its sovereign isn’t as clean as originally thought. According to the WSJ, on Friday a senior EU official said “the ESM is able to take an equity share in a bank. But only against full guarantee by the sovereign concerned.” It won’t technically be on balance sheet but the investment “remains the risk of the sovereign.” One step forward, one step back? Spain’s 10 yr yield is higher by 10 bps to back above 7%. But, as is typical with so many cooks in the kitchen, today an EC spokesman said “there will be no need for a sovereign guarantee for banks being directly recapitalized by the ESM.” The amount of European bank money deposited overnight with the ECB didn’t change much with banks no longer receiving anything in return. A total of 795b euros were sent to the ECB vs 791b on Friday and 791b on Thursday. China’s CPI in June rose 2.2% y/o/y, the smallest rise since Jan ’10 and PPI fell 2.1%, the biggest drop since Nov ’09. Instead of easing fears of stagflation, it just enhanced the fears of stag and the Shanghai index fell to a 6 month low. Japanese machinery orders in May fell almost 15% m/o/m, well more than estimates of a drop of 2.6%. Even after 500 bps of rate cuts and multiple trillions of QE and Twist, Fed Pres Evans, easily the doviest Fed member alive, said in a speech “failure to act aggressively now will lower the capacity of the economy for many years to come.” He repeated again his call that “I support using our balance sheet to provide additional accommodation.”